Wayne Swan

Deputy Prime Minister and Treasurer

3 December 2007 - 27 June 2013

4 January 2008

Doorstop Interview

Friday, 4 January 2008

SUBJECTS: Interest rates, inflation, petrol prices

TREASURER:

The decision by the NAB to increase its variable home loan rate by 0.12 per cent is a direct result of the US sub-prime mortgage crisis. It's a stark reminder that turbulent conditions in international financial markets are pushing up the cost of borrowing right around the world. It is also a stark reminder that Australia is not immune from these international conditions caused by the US sub-prime crisis.

Now I would urge all Australian banks to be mindful of the impact on Australian families and businesses of decisions they are about to take in these areas. These are of course commercial decisions. They are entirely separate from decisions taken by the Reserve Bank of Australia when it sets the official cash rate. But nevertheless they are also a reminder that we as a country do need to deal with the inflation legacy that this Government inherited from the previous government.

The inflation legacy that has been left by the Liberal Party is something that must be dealt with because elevated inflation, the Treasury has advised us, is going to be with us for an extended period of time and will be at or above the Reserve Bank target band for the next 18 months. That's why the Government has rolled up its sleeves and got to work immediately on a range of policies to put downward pressure on inflation and downward pressure on interest rates.

That's why for example almost immediately we strengthened the independence of the Reserve Bank. That's why we've got to work very quickly when it comes to our Education Revolution and our investment in skills and education. And it's why we've got to work very quickly on vital reforms in federal-state relations. Because all of these things are necessary to deal with the inflation challenge.

Because as I've said before, the Liberal Party's parting gift to the Australian people was elevated inflation which the Treasury forecast to be at or above the RBA target band for the next 18 months. That's why it's very important the Government puts in place a range of policies to deal with this inflationary challenge.

This inflationary challenge took a long time to build and it's going to take a significant amount of time to deal with, but we've begun work immediately on that challenge. Over to you.

JOURNALIST:

Are you concerned other banks are going to follow suit?

TREASURER:

Well that's a matter for the banks, but I would urge all banks to be extremely mindful of the impact of their decisions on Australian families and Australian businesses.

JOURNALIST:

Do you think that if they do follow suit it just shows that at the end of the day profits will outweigh all other concerns?

TREASURER:

No, I think what it shows is that there is a significant impact from the US sub-prime mortgage crisis. That's what this shows us immediately, but these events reinforce the need to deal with the inflation challenge – something the previous government was complacent about. It ignored 20 separate warnings from the Reserve Bank about the impact of capacity constraints when it comes to the skills crisis, when it comes to infrastructure bottlenecks, and their impact on inflation. We do face a very substantial inflation legacy given to us by the previous government. That's why we've got to work immediately on a range of policies to deal with the inflation challenge. It was a long time building and it will take time to deal with, but we have begun work immediately.

JOURNALIST:

Do you have anything to say to the banks?

TREASURER:

These are decisions which the banks take in their own commercial interests, but I remind the banks and urge them to be mindful of the impact of their decisions on Australian families with mortgages as well as Australian businesses.

JOURNALIST:

[Inaudible]

TREASURER:

Under Mr Costello there were ten interest rate rises in a row. Ten official cash rate rises in a row – six that occurred in the last term. So I don't think Mr Costello was alert to the inflationary challenge that this country faces, otherwise he would have been at work over the past three years putting in place a range of policies to deal with inflation. He didn't do that, and there were six rate rises during the last three year period, so I wouldn't call that a way with interest rates in any positive sense of the word.

JOURNALIST:

[Inaudible]

TREASURER:

When it comes to the inflation challenge there's no doubt that the buck stops with the Government, but it's a long-term challenge because inflationary pressures have been building for a long period of time – pressures the previous government was extremely complacent about.

The parting gift of the previous government was elevated inflation for an extended period of time. Treasury forecasting is showing that inflation will be at or above the Reserve Bank's target range for the next 18 months. That was the parting gift of the Liberal Party to the people of Australia. It's a challenge which we accept because it's a challenge that we know we must meet if we're going to build a modern economy and put downward pressure on inflation and downward pressure on interest rates.

JOURNALISTS:

Economists are predicting that there will be more banks following suit. What will this do to Australians?

TREASURER:

Well there's no doubt that Australians are highly geared. There's no doubt that Australians are carrying a significant amount of debt and rises in interest rates will certainly affect those Australians. They have a significant impact. The last six interest rates rises under the previous government had a very significant impact. That's why this Government is absolutely determined to deal with the Liberal Party's inflation legacy. We started work on a long-term program to deal with inflation immediately we were elected and that work will continue. We understand the urgency of dealing with the inflation challenge and the problem of that inflation challenge has now been compounded by increases in interest rates internationally now flowing through in the Australian economy.

JOURNALIST:

Given this interest rate rise isn't an official one, is there anything the Government can do to protect families from the increase?

TREASURER:

No these are commercial decisions that the banks take. They are commercial decisions but I would urge all banks to be mindful of the impact on Australian families and Australian business of these interest rate rises.

JOURNALIST:

Your Government campaigned to protect families against increased living pressures. In the past few days there's been petrol increases and now this. Were they just empty promises?

TREASURER:

Not at all. We take cost of living pressures very seriously. That's why we've given the ACCC the power to supervise and monitor what's happening with petrol prices. That's why we're putting in place a petrol cop on the beat in the ACCC and if there has been untoward activity from petrol companies in recent days the ACCC will get to the bottom of it and throw the book at those responsible. Nothing like that happened in the previous eleven years and nothing like that has happened when it comes to dealing with the inflation challenge. The previous government was complacent about the inflationary challenge. It ignored repeated warnings from the Reserve Bank about the impact of capacity constraints on inflation and interest rates. We take that very seriously and that's why we have put in place from the very first day of our election a range of measures to deal with the inflation legacy left to us by the Liberal Party.

JOURNALIST:

[Inaudible]

TREASURER:

What the Government will do is take up the fight against inflation. That's what the Government can do and we have taken up the fight against inflation from Day 1 of our election and we will be attending to that all the way through this term. The previous government left us an extended period of inflation. That's the legacy it's left the country. It's one we have to deal with and it's a responsibility we take very seriously, which is why we rolled up our sleeves and got to work from Day 1.

JOURNALIST:

Is that the blame-game though?

TREASURER:

No it's not the blame-game, it's just the fact. It's the facts of where we are now. Number one: the international sub-prime crisis has produced increases in interest rates around the world and some of those are flowing through here. And secondly: an extended period of inflation has been left to this Government to deal with. We're going to take up that challenge with energy and seriousness and we've got a program in place to deal with it.

JOURNALIST:

[Inaudible]

TREASURER:

The most important thing our Government can do for working families is to deal with the inflation challenge that has been left to us to deal with, because inflation hurts working families, inflation erodes savings and inflation undermines economic growth. That inflationary challenge left to us by the Liberal Party is one that we take extremely seriously and we began work on from Day 1.